Economic replacement of a heterogeneous herd.

Over 55% of the distribution of animals falls in the base price categories (170-223 pounds carcass weight and 49-51% leanness) for schedule 1. Over 28% of the animals receive premiums, and nearly 17% receive discounts under schedule 1. The situation is quite different with schedule 2 where about 19% of the distribution receives the base price, less than 2% receives a premium, and over 79% receive discounts. Examining the marginal distributions (labeled total in table 6) reveals that in moving to the newer schedule 1 from schedule 2 there is a shift toward animals with a lower lean percentage and toward animals with heavier carcass weights.

Conclusions

This paper extends the standard approach to the livestock replacement model to the situation where the unit of analysis is a herd, and the growth of animals within the herd is heterogeneous. Based on simulation results for a swine production unit, we find that explicit recognition of heterogeneous animal growth allows us to evaluate the strategy of marketing at multiple points in time. In the context of a swine producing unit where marketing is typically done in truckload batches, producers can increase expected returns to facilities and operator labor by marketing a batch or two of the heaviest animals, and then waiting a few days before marketing the rest of the herd. By marketing these heavier animals early, the producer is able to avoid some discounts for heavy animals. In addition to increasing mean returns, this strategy resulted in a decrease in the variability of returns as well.

The results presented here are based on an estimated herd-level swine growth model where the original data comes from herds with good genetics, above average growth rates, and above average health status. Thus, the variability of live weight within the herd was at the low end of what is achievable for an average commercial producer. Additional work should focus on evaluating the multiple marketing strategy under a greater within herd variability and for alternative packer payment programs.

[Received March 2004; accepted February 2006.]

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Kathryn A. Boys is a graduate research assistant and Paul Preckel and Kenneth Foster are professors in the Department of Agricultural Economics, Purdue University, 403 West State Street, West Lafayette, IN 47907. Ning Li is senior risk modeler, Consumer Analytics and Modeling Unit, Citigroup, 30 Arbor Road, Syosset, NY 11791. Allan Schinckel is professor, Department of Animal Sciences, Purdue University, Lilly Hall of Life Sciences, West Lafayette, IN 47907.

Assistance in generating simulated heterogeneous herd growth results by Mark Einstein and feed cost information provided by Dr. Brian Richert are gratefully acknowledged. The helpful comments of three anonymous reviewers and the Managing Editor Wade Brorsen are also gratefully acknowledged.

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